Goldman Sachs' profit disappoints investors

Wells Fargo, Bank of America also report

ASSOCIATED PRESS

Published 5:30 am, Tuesday, July 19, 2011

NEW YORK — Goldman Sachs more than doubled its profits last quarter, to $1.05 billion, but even that wasn't enough to satisfy its investors.

The results announced Tuesday came in well below what analysts were expecting because of a sharp drop in bond and currency trading. The 63 percent slump in that business from the previous quarter was much worse than the declines of 18 percent and 20 percent at rivals JPMorgan Chase & Co. and Citigroup. Goldman attributed the decline to investors being nervous about global economic issues.

Goldman Sachs Group, which has made a reputation for embracing risk before other Wall Street banks, also said it reduced a key measure of investment risk last quarter to the lowest level in five years. Goldman also said would eliminate as many as 1,000 jobs as part of an effort to cut costs. Goldman Sachs employed 35,500 people at the end of June.

Related Stories

Wells Fargo & Co., the nation's largest mortgage lender, is turning to cost-cutting as the economy sputters and the grinding housing slump means waning profits from new mortgages.

Wells Fargo posted a 30 percent leap in second-quarter profit, boosted by the release of a big chunk of the money set aside to cover defaulted loans and foreclosed mortgages. But the bank reported a sharp decline in the number of new mortgages it wrote, reflecting the ongoing weakness in the housing market and a drop in refinancing activity.

Bank executives plan to cut $11 billion in expenses by the end of next year.

The San Francisco-based bank said net income for the three months ended June 30 rose to $3.73 billion compared with $2.88 billion in the year-ago quarter.

Things keep getting worse for Bank of America.

On Tuesday, the nation's largest bank reported a loss of $9.1 billion during the second quarter, partly due to an $8.5 billion settlement with investors. That agreement, reached in June, settled claims that the bank had sold the investors poor-quality mortgage bonds. The bank had already announced several other settlements this year. The total so far to settle investor claims: $12.7 billion.

The large settlements and protracted losses related to mortgage loans is causing investors to worry about something bigger: Bank of America's overall financial strength. Bank of America CEO Brian Moynihan tried to ease those worries. He said that the bank's finances were stronger between March and June than they were the same period last year.

"Investors are clearly not convinced that Bank of America is in a comfortable position financially," said Shannon Stem, Financial Services Analyst for Edward Jones, a financial advisory firm. "The margin of safety is clearly lower than at other banks, which leaves them more exposed to an economic slowdown or shock to the financial system."

The bank's revenue declined 54 percent to $13.2 billion from $29.1 billion in the same period last year. Excluding charges related to investor settlements, Bank of America Corp. earned $3.7 billion, or 33 cents per share. That compares with net income of $3.1 billion, or 27 cents a share, in the same quarter last year.